"Please don't come" -Costco 😘

A few weeks ago, Costco opened its first store in China, and it was so popular they had to close the store and send a message to customers that said “Please don’t come.” Here’s a pretty crazy video of people waiting three hours for parking, sneaking under the barricade, and clamoring for rotisserie chicken 🍗.

When Costco enters a new market, they want ~5% of the population to sign up for memberships. In this suburb of Shanghai, there are 2M people, and Costco signed up 139K members in one day (that’s 7% if you do the math – not bad!).

It’s easy to forget that 90% of retail still happens offline, and Costco is one of the leaders in building a stellar offline retail business. How does their model work? Here’s a quick summary:

• Offer the lowest prices by keeping product markups to 15% or less
• Charge an annual membership fee of $60 (and sign up 53M members)
• Aim to break even on products but have all membership revenue drop straight to the “bottom line”
• Make $142B in total revenue, $3.1B in membership revenue, and $3.1B in profit

Check out this fantastic investment “memo” if you’re interested in how Costco has been so successful in the age of online retail. And read Madrona’s Future of Retail investment theme if you want more info on how we’re thinking about innovation in this market.

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